The subprime financial crisis lead to a decline in stock prices because
A)of a lowered expected dividend growth rate.
B)of a lowered required return on investment in equity.
C)higher expected future stock prices.
D)higher current dividends.

Question

Quizplus · Accepted Answer

The subprime financial crisis caused a decrease in the expected dividend growth rate, which subsequently led to a decline in stock prices. When investors perceive a lower expected growth rate, they are willing to pay less for each share of stock, resulting in a decrease in the stock price. The other choices are not directly linked to the subprime financial crisis and do not explain the decline in stock prices.

The Subprime Financial Crisis Lead to a Decline in Stock